Effects Of International Commercial Laws On Indian Laws (By-Ashish Deshmukh)

Effects Of International Commercial Laws On Indian Laws

Authored By-Ashish Deshmukh[1]

Abstract

International Commercial Laws can be rightly described as formidable wheels of the chariot of Globalization and liberalized world economy. It is a corpus of laws , treaties and conventions which govern the international commerce between state and non-state actors. International trade transcends the national boundaries to ensure a seamless flow of goods and services, which is thereby guided by international commercial law and institutions based thereon. While the evolution and development of international commercial law has been revolutionary, it has impacted the developed, developing ,and poor countries in varying degree , with it having to brush its shoulders with domestic legal-regulatory frameworks of respective countries. This paper aims to study the interesting encounter of Independent India, especially after its LPG reforms post-1991, with international commercial law not only for understanding the changing nature of Indian laws at the backdrop of international commercial law but also because it is representative of the entire developing world. The paper will touch upon the effect on Indian Laws which has thereby affected multiple sectors including but not limited to Indian industry , financial & money markets, FDI/FPI inflows, environment, and even agriculture.  Finally, as the world enters into Globalization 4.0 and Industrialization 4.0, the discussion in this paper becomes extremely important to understand the future of Indian domestic laws, as post-pandemic recovering India aspires to become a 5 trillion-dollar economy and International Commercial Laws are converging more rapidly than ever.

1] Introduction :

           “Commerce is the equalizer of the wealth of nations” – William Gladstone[2]

International Trade and Commerce have always been dominated & guided by the political ideology of liberalism with free-market economic underpinnings. The dream of classical liberalism of a laissez-faire economy was only possible if international commercial law was established making it legally feasible to establish commercial relations beyond borders, because unless markets were opened up, ‘the invisible hand’ of Adam Smith would have been constrained at respective national borders. To walk over the national borders with an objective to establish strong international commercial ties was at odds with the Westphalian notion of sovereignty for many decades especially until the end of cold war era. While even during the cold war there were efforts to establish an international commercial law regime , the said efforts were handmaiden of the power politics at play between the then superpowers and could not achieve expected potential .

Similarly, UNDROIT made the first attempt to formulate the principles of international trade law in its Report to UNCITRAL" on the Progressive Codification of the Law of International Trade,1971 :

“The very fact that the legal relationships of international trade are international in character puts them outside the jurisdiction of municipal law and makes them governable by a law removed from any national contingencies, that is, an ordinary law of international trade, which alone can provide the legal framework which international trade needs in order to develop.”[3]

The above vision of UNDRIOT overestimated the then potential of world economy and could not be fruitful. Later , after the drafting of “Principles of International Commercial Contracts” by UNDRIOT in 1984 and UN Convention on contracts for International Sale of Good (CISG)” adopted in 1980, groundwork for international commerce was laid down. The General Agreement on Tariffs and Trade which is considered as the foundation of international commercial was signed in 1947 and yet institutional framework in form of World Trade Organization was established only in 1995. After establishment of WTO , the process of  harmonization of commercial law started.

Harmonization is defined by David Leebron “as making the regulatory requirements or government policies of different jurisdictions identical or at least more similar.”[4]

The end of cold war and fall of Soviet Union in 1991 coincided with said triumph of liberal capitalism which aspired for free trade and swift movement of goods and services with minimal state control , and thus created fertile ground for the development of international commercial law.  The cold war end also coincided with liberalization of India’s economy in 1991 with the acceptance of Liberalization , Privatization and Globalization (LPG) model and rapid globalization of world economy which led to India being directly affected by international laws.

2]Research Objectives:

The core objective of this paper is to primarily discuss the effects of internationalization of  commercial law , in context of India’s legal framework and includes inter alia the following objectives as well :

Discussing constructive and positive effects on India’s laws under influence of international commercial law.
Multidimensional impact of international commercial law on India’s domestic laws.
Analysing the impact of international multilateral institutions on commercial law regime in India.
Suggesting measures to establish amicable mechanisms to ensure compatibility between international commercial laws and Indian laws , while securing national interest of India at the same time.
Providing an insight into alternative dispute resolution mechanisms in order to deal with commercial law conflicts at national and international level.

3] Indian Obligation To International Commercial Law

Indian Constitution in its Article 51(c) talks about the specific obligation of state to “foster respect for international law and treaty obligations in the dealings of organized people with one another.”[5] Similarly , in the case of Vishakha v. State of Rajasthan[6] the Supreme court clarified that international law will be incorporated in the domestic laws except when it is in contravention of the domestic laws. This perspective emanates from the doctrine of dualism that is the fact that international and domestic laws exist complementary to each other , which India follows & finds mention in recently released report of Parliamentary Committee on External Affairs titled “India and international law” tabled in the Lok Sabha.[7]

In the context of international commercial law , India after opening its economy in 1991 & even before it , created legal framework for international trade by amending the existing acts and passing few new acts . Early liberalization period of Indian economy saw expansion of the Open General Licensing(OGL) list from merely 79 goods items in 1976 to OGL encompassing 30 % of all the imports of India.[8] The Foreign Trade (Development and regulation) Act , 1992 was enacted to ensure smooth international commerce. India enacted Arbitration and Conciliation Act, 1996 which was a direct effect and under influence of UNCITRAL Model Law on International Commercial Arbitration,1985.[9] This act ensured that international commercial law in India now could find roots with swift dispute resolution mechanisms in place. Under the influence of well-established WTO regime , India made numerous amendments to its laws for reducing non-tariff & tariff barriers to commerce , anti-dumping duties , safeguard duties , intellectual property rights regime etc. India’s Trade Policy Review (1998) points out that  India promptly amended its Copyrights Act in 1994 to keep in line with the Trade related aspects of Intellectual Property Rights (TRIPS ).[10]  It must also be noted that , to ensure barrier free yet regulated international commerce and trade , Foreign Exchange Management Act ,1999 was enacted which not only facilitated flow of currency for commerce across the borders but also laid down offences regarding the same. Despite being

heavily influenced by International Commercial Law., India’s laws were thus developed with a cautious optimism of a newly liberalized country.

4] Constructive & Positive Effects Of International Commercial Law Regime On Indian Laws

Vienna Convention in its Article 27 is categorical that a state must amend its domestic  laws in order to honour its commitments to international law. India’s laws have well responded to the changes in international commercial law and as a result of these changes India has been able to reap the benefits of globalization driven international commerce.

4.1] Protection from Dumping of goods :

 One of the prime motives of International commercial law regime is to create a level playing field for all countries whether developed , developing or poor. However , during such practice , many nations tend to dump their goods across the border at drastically lower cost than at home , thereby intentionally hurting the domestic firms to eliminate them from the competition and eventually monopolise the market. However under influence of international law , especially under Agreement on Implementation of ARTICLE VI of GATT 1994[11] , India amended its Customs Tariff Act , 1975 in 1995 which provided for anti-dumping duties. Since 1995 till 2000 India anti-dumping cases accounted for 12 percent of the total cases in the world. This had a positive effect of protecting the small rising firms in India.[12]

4.2]  Strong regime of Intellectual property rights :

With the explosion of technology along with trade and commerce , protection of the intellectual property rights in definite domestic statutes is a precondition for attracting the international investors , importers , opening up the foreign market for domestic exporters and boosting cross border commerce. While India already had a Patents Act,  1970 which was rightly amended in 2005 to incorporate the principles of World Intellectual Property Organization (WTO) and the Trade related Aspects of Intellectual Property Rights TRIPS agreement of WTO by making a shift from Process patent protection to Product protection .

Also as mentioned above , The Copyright Act, 1957 was amended in 1994. Furthermore , other acts were enacted such as The Designs Act, 2000, Trademarks Act, 1999, The Geographical Indication of Goods (Registration and Protection) Act, 1999, The Information Technology Act, 2000 The Protection of Plant Varieties and Farmers Rights Act, 2001 etc. India recently established Patent Protection Highway (PPH) with Japan , as a mechanism for smooth mutual patent recognition.

4.3] Bilateral and Multilateral Agreements:

 India has astutely created a strong network of Free Trade Agreements (FTA) and Preferential Trade Agreements (PTA) with like-minded countries of complementary potential like India Afghanistan PTA, India South-Korea CEPA ,India Japan CEPA , India ASEAN FTA etc for ensuring economic and commercial integration of the world where India is a net gainer.[13] India recently  concluded the must discussed CEPA with United Arab Emirates towards the same end. India has been an eager participant in regional trade agreements like SAFTA , Asia-Africa Growth Corridor , PTA with MERCOSUR etc.

4.4] Effect on Foreign Investment laws & policies in India :

The Foreign Exchange Management Act 1999 (FEMA) governs the foreign investment in India which has been time and again updated to liberalize FDI to keep in pace with demands of International Commercial Law and India’s own ambition of becoming an economic giant by opening its borders. With amendments made to FEMA in the recent years of 2017 and 2019 , FDI has been allowed fully via automatic routes in most of the sectors except a few sectors of national interest like defence ( Even in defence sector FDI has been increased hugely from 49% to 74% by automatic route) .  Furthermore , Securities and Exchange Board of India (FPO) regulations , 2019 allows 10 percent of foreign investment as Foreign Portfolio Investment , while beyond 10 percent it is termed as Foreign Direct Investment. 

4.5] Effects on Competition Law :

 Under the influence of WTO Minstrel Conference in Singapore,1996 and Doha Minstrel Deceleration 2001[14] , India enacted The Competition Act, 2002 to establish a level playing field among all the private players and prevent monopolization of market by single player. Today , India’s Competition Law regime is held to be at par with that of United States or United Kingdom.

4.6] Effect on welfare legislation :

It must be noted that unlike the other countries which saw the roll-back of state after liberalization under influence of international commercial laws , India was an exception to the trend with the  State becoming more proactive in ensuring the welfare and social security. Under the influence of International Labour Organization (ILO) , Contract Labour (Regulation and Abolition) Act,1970 was enacted. Similarly ,  Child Labour Act 1986 , Civil Rights Act 1995 , MGNERGA etc were enacted. This was direct effect of international commercial law making the traditional notion of sovereignty brittle.

4.7] Effects on Environment and Species Conservation Laws :

The framework of WTO in its Doha Round recognized the importance of sustainable development of commerce with protection of environment. A Regular Trade and Environment Committee was established as well.[15] Being a member of Convention on International Trade in Endangered Species ( CITES) which regulates international trade and commerce of wild animals and plants , India enacted Wildlife (Protection) Act 1972.

5] Challenges For India Due To International Commercial Laws

5.1] Challenges to Agriculture sector in India :

 International Commercial and trade laws seem largely biased towards the developed countries , ignoring the fact that agriculture being prime occupation in most of the Asian African developing countries and trade in agricultural commodities must be accorded primacy in commercial relations. Under the influence of WTO regime , despite the peace clause given to India under to Agreement to , the export support given by developed countries to their farmers although within prescribed limit, still makes the agricultural trade and commerce uneven.

India’s schemes and laws related to agriculture are under the shadow of fear due to temporary nature of peace clause & WTO’s Agriculture on Agriculture. India has enacted National Food Security Act in 2013 with a motive of ensuring food security and elimination of hunger .However ,

WTO laws consider excessive food security support as ‘trade distorting’.[16] If in the future peace clause is not agreed upon , India will have to amend its NFSA and reduce food security support. Recently introduction of three Farm Laws in India , which are now withdrawn , can also be seen as an effect of international commercial trend to commercialize agriculture in assumption of a trickle-down effect on poor farmers. Thus international commercial laws put huge pressure on Indian agricultural laws and policies and is it indeed becomes a challenge to comply with them.

5.2] Challenges to Government Schemes , Policies and Laws :

 After United States challenged India’s export schemes in WTO , WTO panel in 2019 held that the export support India provides through various schemes and policies like Special Economic Zones (SEZ) established under Special Economics Zones Act 2005 , Merchandise Export from India Scheme (MEIS) etc were ‘inconsistent with the provisions of Subsidies and Countervailing Measures (SCM) Agreement’, considering them ‘prohibited subsidies’ under the agreement.[17] Thus in order to comply with International commercial laws and WTO Agreements , India had to scrap the MEIS , reduce its export support and instead rolled out Remission of Duties or Taxes on Export Product (RODTEP) as its replacement. Thus , it becomes tedious to change schemes and laws according to global commercial laws and institutions.

5.3] Challenges of Trade Agreements :

Although India has FTAs and PTAs with multiple countries , reported data point of that India has not benefitted adequately from them. This was also the prime reason for India to opt out from the Regional Comprehensive Economic Partnership (RCEP).  Although it benefitted from SAFTA moderately , SAFTA could not bring about commercial and economic integration of South Asia. 

5.4] Challenges of Maintaining Quality of Commercial Products:

Indian exporters have time and again faced numerous challenges with respect to quality standards of commercial laws regimes , mostly due to fertilizers used , pest infections , illegal dyes etc. However , these challenges also pertain to the avoidable and unrealistic standards established by international laws and trade institutions.

WTO’s Agreement on Application of Sanitary and Phytosanitary Measures (SPSA) which aims at protecting human , plant, and animal life from risks of introducing contaminant through trade , has in fact become a tool at the hands of developed countries to practice protectionism under the guise of showing such measures as ‘genuine concerns.[18]

6] Effect Of International Commercial Arbitration On India Laws

Commercial Disputes in India have been traditionally dealt by civil courts in respective districts. Government has also enacted Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 to provide a statutory basis. Besides these , to reduce the burden over the civil courts dealing with commercial disputes , Indian parliament enacted the Arbitration and Conciliation Act , 1996 which , in its section 2(1)(f) defines ‘international commercial arbitration’ as an arbitration relating to disputes arising out of legal relationships, whether contractual or not , considered as commercial under the law in force in India , where parties might be residing inside India or outside India. The above act was amended from time to time and most recently in 2019 to include an elaborate framework for appointment of arbitrators , with increased role of Supreme Court and High Courts. India also enacted New Delhi International Arbitration Centre Act , 2019 for establishing New Delhi International Arbitration Centre (NDIAC). India’ efforts to create an Alternate dispute mechanism for commercial disputes keeps up with the current trend around the world where arbitration is favoured , to avoid huge wastage of resources and time in litigation.

7] Suggestions :

India, especially after its liberalization in 1991, has always been proactive to integrate itself with the world economy via trade and commerce. However , India’s share in global commerce has remained under its achievable potential which is visible from the fact that India’s share of merchandise exports has remained well below 2 percent of global exports[19] , while Indian imports are high in cost and irreplaceable in the near future as being related to fuel. India thus takes some serious steps to improve its dealings in cross border commerce.

Firstly , India must draft a well deliberated strategy for improving its logistics sector for international commerce is only as good as logistics of a country. Currently, according to Logistics Performance Index , 2018 , India is ranked 44th among all countries. In this regard , Commerce Ministry recently mooted an idea for a ‘National Logistics Law’ which can be a gamechanger for international commerce.[20] Secondly , it is extremely essential to develop a strong manufacturing sector for competing with international players. Indian National Manufacturing Policy , 2005 needs an overhaul owing to changing international commerce and incoming of new technologies in the international market. Thirdly , FTA negotiations with important players like European Union must be pushed harder for access to such big markets would be a springboard for international commerce. Fourthly , as we enter into Globalization 4.0 and Industrialization 4.0, effective collaborations with multilateral organizations like WTO and ITO must be established for creating new mechanisms to boost inter country trade and commerce , catering to changing needs of industry.

However , the responsibility of developing strong interconnected commerce links around the world cannot be solely burdened over India. International Trade Organization must become more proactive to ensure that world economic and commercial integration gains pace and that international commercial law and domestic laws are harmonized. Similarly , World Trade Organization (WTO) has to recognize that different countries around the world are at different stages of development and single law , agreement or convention cannot be applicable to all.

Furthermore , WTO needs to note that developed countries cannot be seen as a standard for establishing international norms for all the countries in the world.

8] Conclusion

Post Pandemic India with a huge dream of becoming a 5 trillion-dollar economy , will need a visionary blueprint encompassing all sectors of economy and infrastructure to build an ecosystem supporting international commerce and trade. International commercial laws will continue to have effect on Indian laws as globalization gains even more pace. While this process of harmonization of domestic and international laws will continue to yield rich dividends for growing India , we must also ensure that our domestic legal-economic-policy framework is strong enough to make our domestic firms compete effectively against the Multinational Companies from different countries. Besides , the boundaries of international commerce are expanding as well , due to the explosion of ‘e-commerce industry’ where domestic regulations of various countries have been quite different from each other in nature owing to different concerns of data privacy , edge computing etc along with lack of an international e-commerce law for uniform standards . India must work on its strength that is the commerce and trade in services to capitalize on this rising e-commerce market. India must work on international platforms to ensure that while international commerce will gain pace with rapidly converging world due to globalization 4.0 , concerns of environment ,climate change , wildlife conservation , poverty and pandemics must be proactively paid attention to and cannot be assumed  to corrected with merely expanding commerce for as M.K Gandhi rightly points out that “Commerce without Morality”[21] is one of the seven social sins we can commit !